RTRS:Euro near 8-week high, focus on central banks
(Reuters) - The euro traded near an eight-week high against the dollar on Tuesday, buoyed by ongoing expectations of decisive action to tackle the euro zone debt crisis and speculation U.S. policymakers are close to introducing more monetary easing.
Investors were reluctant to buy the dollar in the run up to a meeting of central bankers at Jackson Hole In the U.S. Any hints of further easing from Federal Reserve Chairman Ben Bernanke, who speaks on Friday, would be likely to weigh on the dollar.
Traders said news European Central Bank President Mario Draghi was too busy to attend Friday's Jackson Hole meeting renewed hopes he could announce a long-awaited plan to bring down Spanish and Italian borrowing costs at the ECB's September 6 policy meeting.
The euro was down 0.1 percent against the dollar to $1.2543, but held within sight of last week's peak of $1.2590, the highest level since early July.
Many strategists said the single currency could struggle to break above that level before the ECB meeting, as the market is looking for concrete details on any bond-buying scheme before adding to long euro positions.
"The hope in the market is that big steps are going to be taken in September that are going to alleviate the strains in the sovereign debt market," said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi.
"On top of that there's the Fed element to throw in, a large portion of the market is expecting QE3 in September."
The euro has rallied in recent weeks since Draghi said he would do whatever it took to preserve the currency.
As well as the ECB meeting next week traders were also looking ahead to a German constitutional court's ruling on euro zone bailout funds on September 12, a euro zone finance ministers' meeting on September 14 and a report on Greece by international lenders later in the month.
Bank of Tokyo-Mitsubishi's Halpenny said the risk of disappointment from any of these events was high, and recommended selling the euro if it climbed close to $1.28.
Some market players also questioned whether Draghi's decision to skip a visit to Jackson Hole was a good sign.
"Is it really a good sign that a central bank governor suddenly cancel his plan? The market may be reading it wrong. It could be because he has some urgent issues to deal with," said Kimihiko Tomita, forex manager at State Street.
JACKSON HOLE EXPECTATIONS
The dollar index rose 0.15 percent to 81.474, edging up from a two-month low of 81.221 hit last week.
While the dollar has been undermined by speculation Bernanke use Friday's speech could give a clear hint of imminent easing, some market players say he may just repeat that the Fed has room to act. That would likely leave the market guessing until the Fed's next policy meeting on September 12-13.
The currency options market is placing limited premium on contracts covering Friday, suggesting players expect only minor price action on Bernanke's speech.
Even beyond Jackson Hole, options are not pricing in a surge in market volatility, with one-month euro/dollar volatility still below 10 percent despite heavy event schedules next month.
Against the yen the dollar was steady at 78.49 yen, while the euro dipped 0.1 percent versus the Japanese currency to 98.46 yen.
The Australian dollar held near one-month lows on persisting worries about Chinese growth. It last stood at $1.0361, and also plumbed an eight-week trough against the euro, which reached A$1.2123.
Investors were also focused on a Norges Bank rate decision at 1200 GMT. Strategists said rates were likely to stay on hold at 1.5 percent, which would have little impact on the Norwegian crown, although there was a risk policymakers would try to talk down recent crown strength.
(Additional reporting by Ian Chua and Hideyuki Sano/Editng by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)
